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Student debt: Housing's biggest roadblock?

March 14, 2013

The Consumer Financial Protection Bureau is going beyond the regulation of mortgages and has its sights set on overseeing non-bank student loan lenders who may end up causing college graduates to miss other major life milestones—such as taking out a mortgage.

Life is comprised of major milestones: first day of school, graduating college, getting married and buying your first house. However, the graduating college milestone is turning into a roadblock rather than a milestone, the CFPB suggested this week.

Student debt is the second largest type of household debt after mortgage debt. But, as mortgage debt continues to improve, student debt is becoming more cumbersome, the Federal Reserve Bank of New York asserted recently. 

"The decision to take out student loans may be the first major financial decision for many of these borrowers. With the challenges they face in the current economic environment, they can be precluded or delayed in pursing other financial opportunities like getting a mortgage or saving for retirement," said Richard Cordray, director of the Consumer Financial Protection Bureau.

Taking initiative, the CFPB proposed a rule Thursday that would permit the agency to oversee certain non-bank student loan servicers, ensuring that the banks and non-banks are complying with federal consumer laws.

The CFPB is attempting to bandage the servicing part of the student debt wound, according to Cordray's speech. Borrowers are saying they are getting confused, hitting dead ends and having to run around to receive help, the CFPB director stated.

"Our proposed rule would bring new oversight to this market and give the bureau visibility into the complete cycle of student loan debt," said Cordray. "We do not want to see their college degrees to become more burden then blessing." 

What's interesting about the CFPB's regulation is that it targets private lenders. However, federal student loans are known to produce as much debt, although they do come with more servicing options.

Handling the servicing of non-bank student loans is certainly a significant step, but what about the cost of college itself or the universities ongoing reliance on the government to continue feeding them loan money with no limitations or constraints?

But for the students, a focus on the topic is at least helpful.

Analysts with Compass Point Research & Trading noted that essentially the CFPB "proposed a rule which would expand their supervisory authority to the vast majority of nonbank student loan servicers. If the rule is finalized, which we expect it will, then the majority of nonbank student loan servicers of both private and federal student loans will be supervised by the CFPB."

"Furthermore, this rule would allow the CFPB to supervise private student loans from life to death," Compass Point said. "This action by the CFPB is consistent with the agency's focus on servicing issues to date."

 

 

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